Something for nothing

January 27, 2013

We have become a nation that believes that we can have something for nothing.

It's an economic mindset that transcends partisan politics to become the de facto guiding principle for an entire generation of lawmakers in Washington.

It's predicated on a false sense of entitlement that has so thoroughly suffused national politics that the far right has joined hands with those on the academic left in proclaiming that budget deficits and attendant national debt really don't matter to our economic wellbeing.

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Ivory-tower Keynesian economists have long sought to explain away government debt as a natural function of monetary policy, but none have exposed it better that James K. Galbraith, who wrote recently, "Government and banks are the two entities with the power to create something from nothing."

Together, they anchor both ends of the political spectrum with a common, almost imperialistic philosophy that holds that, because the United States has the world's leading sovereign currency, we can always somehow manipulate our economy to grow away our debt or simply print more money.

But something-for-nothing policy is failing us all and the United States' first-ever credit rating downgrade is proof.

Remember the last debt-ceiling debacle?

All Congress did was kick the can down the road to this year so they could put off the strong medicine our economy needs; meanwhile, the national debt has grown to $16.4 trillion with yet another debt-ceiling showdown pending.

Remember the Simpson-Bowles Commission? It was supposed to be the best bipartisan effort for reining in the annual budget deficit, but it failed miserably.

Nobel Laureate Paul Krugman stated recently that the problem in Washington is not fiscal discipline but the need for more government spending despite the fact that we have had not one, but two, massive rounds of quantitative easing (i.e. printing more money) for stimulating the economy and our lawmakers have been stimulating the economy every year since the financial crisis by more than a $1 trillion with annual budget deficits.

Evidently that's just not enough, as Krugman stated recently that "All that's lacking is the intellectual clarity and the political will" for more spending.

But he should be reminded that markets see it otherwise as the United States' credit rating has undergone its first-ever downgrade because of the very policies that he espouses.

For old-school economists who have long held that annual budget surpluses and a balanced budget actually make fiscal sense, it evokes a longing for the Clinton years and comparative economic prosperity.

For historians, it provides yet another chapter in economic thought that holds that profligate government spending and currency manipulation underpin false economic principles as nations ultimately cannot create something for nothing in a global economy.

In addition to the United States' credit-rating downgrade, further proof is provided on almost a daily basis by Eurozone nations Portugal, Ireland, Italy, Greece and Spain, whose staggering national debts threaten the very existence of the European Union.

Unable to manipulate currency markets or create more debt, Portugal, Ireland, Italy, Greece and Spain are faced with the economic reality of having to actually live within their means.

This is due largely to Germany taking control of the European Central Bank and instituting ordoliberal economic policies that serve as a tourniquet on sovereign debt nations.

Ordoliberalism is the antithesis of easy-money policy as it's founded on a commitment to stable currency and government regulations that accelerate free market forces - the very thing the United States needs now.

Let's face it, our best and brightest are out of touch and Krugman's recent comments are proof when he stated recently, "... even if ... investors decided they don't like U.S. government debt, it can't cause a funding crisis because the U.S. government prints money."

And when asked what he would do if he were U.S. Treasury Secretary, "I'm for whatever gimmick works."

"And there is this wonderful bit about the platinum coin. In a 1997 act amended in 2000 which covers issuance of coins and stuff like that, there's one clause that says that the Secretary of the Treasury shall have the right to mint and issue platinum coins in any denomination that he so chooses."

Krugman adds, "And as far as legal scholars have been able to make out, there's no reason why the Secretary of the Treasury can't order the minting of a coin that says this coin is worth $1 trillion ... walk that coin over to the Federal Reserve ... and then the government can pay its bills by drawing on that bank account."

"And it's crazy, it's an accounting gimmick, but then this whole thing is crazy. And if that lets you bypass this nonsense about the debt limit, fine," Krugman said.

This from a Nobel Laureate in Economics who still believes that we can have something for nothing.

- Swint is a commercial property broker and political activist from Charleston.